No Left Turns

Sensible Fanaticism

Having won back a majority in the House of Representatives in 2010, congressional Republicans "were in the grips of true fiscal fanaticism," which led them to approach last year's negotiations over spending cuts, tax increases, and the federal debt ceiling by "threatening the country with financial ruin unless they got their way." That, at any rate, is how the New Republic's Noam Scheiber sets the scene for last year's negotiations over the federal debt ceiling. According to Scheiber's account, the negotiations collapsed because it was impossible to split the difference between Republicans who wanted to cut spending - including spending on entitlement programs - without raising any taxes, and Democrats from the White House and Capitol Hill who thought debt reduction without tax increases was unconscionable. One congressional Democrat involved in the talks challenged the Republicans to justify "a conversation asking [Medicare recipients] to pay [higher premiums]
unless you're talking about closing corporate tax loopholes and special
breaks for corporate jets."

The point where the talks broke down, in Scheiber's telling, came when one GOP negotiator said, "Let me get this right. You're saying there are Medicare savings
you think would be good policy. But you won't do them unless we agree to
raise taxes?" The Obama administration's representatives "looked back at him stone-faced and
simply said, 'Yes.'" The unearthing of that detail tells us that Scheiber is a good reporter. Since the Republican's reasonable question and the Democrats' matter-of-fact intransigence never causes him to question his framework about earnest, sensible Democrats trying in vain to deal with GOP crazies, however, it does little to enhance his reputation as a political analyst.

It's possible to make sense of his vignette in a different framework:

1) The revelation that powerful Democrats believe some policy changes would make government social programs more efficient or better targeted to the people who need them most, but prevent those changes in order to bargain for tax increases rather than make them in the interests of good governance, neither flatters them nor reassures us.

2) The most plausible explanation for this dereliction is that these Democrats have a stronger commitment to the care and feeding of the liberal coalition than to the successful implementation of the liberal agenda. Governor Mitch Daniels of Indiana told an interviewer, "I argue to my most liberal friends: 'You ought to be the most offended
of anybody if a dollar that could help a poor person is being squandered
in some way.' And some of them actually agree." But a lot of them don't agree: The money being "squandered" on bad governance is being devoted to smart politics, buying support from public employees who administer programs and deliver public services, and beneficiaries whose needs are less acute but whose votes are numerous.

3) The tax code hasn't had a good scrubbing since 1986, and is overdue for another. After passing the Tax Reform Act of 1986, however, Congress immediately began treating the miraculous accomplishment of blowing up the accretion of bad and weird tax breaks from the past as an opportunity to start amassing new ones.

4) The template from 26 years ago, nonetheless, still deserves to be emulated. The 1986 success depended on decoupling how to tax from the how much to tax, by insisting any reforms be revenue-neutral.

5) A tax system is a useful device for funding government operations, but a poor vehicle for realizing nebulous visions of distributive justice. Even people who favor more progressive taxes, such as Clive Crook and Matthew Yglesias, believe that raising taxes on the rich is peripheral to the question of increasing opportunity and economic security for everyone else, especially the poor. Crook writes that the "US income tax system is more progressive" than the ones found in other modern nations. He cites a recent study by the Organisation for Economic Cooperation and Development, showing that those in the top decile of the US income distribution pay 45.1% of all taxes and receive 33.5% of all household income. That ratio (1.35 : 1) is higher than in any of the other 23 countries OECD examined. Sweden, by contrast, is more egalitarian in the sense that its top decile receives a lesser portion, 26.6%, of all income, but less egalitarian in terms of tax progressivity: the top decile pays 26.7% of all taxes. Yglesias agrees: Three years ago he wrote, "The United States already does about as much as any other country to curb inequality through the tax code."

6) Crook and Yglesias agree, further, that if American liberals want the U.S. to more closely resemble social democracies around the world, the big change required is a more generous welfare state. "In
most industrial countries," Crook contends, "social benefits such as unemployment insurance and other cash supports are easier to get and more
generous than in the U.S. - and typically two or three times
more powerful in reducing inequality." (He notes in passing that "American liberals find high
incomes more upsetting than poverty. It's an instance of how
distorting the preoccupation with inequality can be.")

7) The indispensable fiscal requirement for Swedenizing America's welfare state would be to raise taxes, considerably, on most Americans, not just on the top decile or percentile. Americans who care about inequality, according to Yglesias, should ensure "that there's enough tax revenue to finance generous public services" by emulating Scandinavian social democracies, where "a cradle-to-grave welfare state [is] financed largely through regressive taxation..."

8) In a democracy, that fiscal necessity engenders a political one: The people committed to a much bigger welfare state must explain its virtues to the voters in a way that will attract wide support, or at least acceptance, for the large, broad-based tax increases need to pay for such a welfare state. "The politics of this approach are tricky," Yglesias writes, with considerable understatement.

9) The politics have been made far trickier by liberalism's sins of omission and commission. Liberals have devoted much energy over many years to encouraging the belief that a big welfare state that benefits almost everyone can be paid for by a highly progressive tax system that burdens almost no one. To clear up, at long last, this teensy misunderstanding will require liberals to draw on credibility they've squandered and overcome skepticism they've earned. It will, further, require them to assure taxpayers that the additional funds they surrender will be put to their best and highest uses - spent on weak claimants rather than weak claims, as David Stockman used to say. This will require a liberalism that is obsessive, rather than reluctant and conflicted, about making sure that a welfare state dollar that could help a poor person is not being squandered on government workers' pay and benefits, or on beneficiaries whose needs are not especially, or even vaguely, acute.

The Obama administration officials Scheiber describes rejected entitlement program changes that were cuts, but also improvements, unless they were paired with tax increases that had little to do with increasing the government's revenue stream and everything to do with the optics of "shared sacrifice." The Republicans who negotiated with them had no incentive to make liberalism more coherent, candid, or successful, but inadvertently offered them just that opportunity. Their failure reveals that liberals are more interested in painting themselves into an even tighter corner than in finding a way out of it.

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